Worried about how you will repay your mortgage?

There are few financial things that can weigh as heavily on a mind as worry about paying your mortgage. However, if that worry is the spark that ignites the fire of taking positive action, this can be a good thing.

Broadly speaking, worry about paying your mortgage will stem from one or both of the following concerns:

1. That your mortgage payment will go up (if you are on a variable or tracker rate, or on a fixed deal coming to an end).
2. A change in your personal circumstances (such as being made redundant or losing some of your benefit entitlements).

The effect of both, however, will be the same: You are worried that you will struggle to afford your mortgage payments.

Before you become too anxious, it’s a good idea to make sure that you are in full possession of the facts about your mortgage. It’s a good idea to answer the following questions first, so you can consider what options you might have:

• Do you know the mortgage rate you're currently paying?
• Are you on a fixed rate or variable mortgage?
• If you are on an introductory deal like a fixed rate or tracker, when does it end? Is there an early repayment charge payable if you want to switch lenders?
• Do you know the rate your mortgage will move to when you come to the end of an introductory deal?

The answers to these questions can be easily found or provided by your lender and could help allay your fears of an immediate problem.

Research has found many us have no idea by how much our mortgage payments would increase by if the interest rate were to rise by 1%. That's not good if you are currently on a variable or tracker rate, or on a fixed rate nearing its end.

If you have a mortgage balance of £150,000, a 1% rise on your interest rate could cost you up to an extra £125 per month. So, if you are already struggling that's not a welcome surprise.

Start by finding out the sort of increase you could be dealing with. If the payment on your variable or tracker rate mortgage has not changed since you took it out, refer to section 7 of your mortgage offer or key facts illustration, where it will say how your payment would change if rates went up by 1%. If you haven't got this information, check your latest mortgage statement or call your lender to find out your current mortgage balance and what rate of interest you are paying. Then do the following calculation to work out the worst-case scenario:

Step 1

• Take your current mortgage balance
• Divide by 100
• Multiply by your interest rate
• Divide by 12.

This equals the approximate amount of interest per month that you are currently paying.

E.g. You've got a mortgage of £150,000 on an interest rate of 3%. You'd be paying £4,500 per year in interest (150,000 ÷ 100 x 3), which would be £375 per month.

Step 2

• Take your current mortgage balance
• Divide by 100
• Multiply by(your interest rate + 1%)
• Divide by

This equals the approximate amount of interest per month that you would pay if your interest rate increased by 1%.

E.g. Your interest rate rose to 4%, meaning you'd pay £6,000 in interest per year (150,000 ÷ 100 x 4) or £500 per month.

Step 3

• Subtract the answer to step 1 from the answer to step 2.

This is the approximate amount extra you could pay each month for an interest rise.

E.g. £500 - £375 = £125 extra

If you are coming to the end of your fixed or tracker rate deal, you will be put onto your lender's standard variable rate (SVR). Find out what rate applies and work out how much extra per month you could be paying – just substitute "your interest rate + 1%" with your SVR or revert rate in the above calculation.

Life has a habit of throwing up unexpected events (both good and bad), sometimes with little warning. Births, deaths, injury, illness and separation are all things we primarily think of in an emotional way, occasionally at the expense of considering the financial repercussions. What all these events have in common is that they may affect your ability to pay your mortgage. Some can be countered with insurance, such as life insurance or protection cover. Others can leave you in a quandary: you want to stay in your house, but you can no longer afford the payments.

You could be entitled to benefits but not realise it. Check out the gov.co.uk website to give you an idea if you are entitled to benefits and if so, which ones.

Being insured against a range of risks is a good idea. Buildings insurance with a mortgage is compulsory but there is a raft of other policy covers available to help protect you from unexpected events. There are two types of worry to look at here. Either your worry is founded on something that is already happening or very likely to happen, such as your company consulting on redundancy, or your worry is about a risk that you are exposed to, such as "how would my family stay in the house if I died?" but there is no hint that this is likely to happen at present.

If your worry is founded upon something that has happened, is happening or is very likely to happen…

Check if you're insured. A lot of us don't even know what insurance we have in place! Dig out all your old paperwork, particularly regarding the mortgage, and read it carefully - you may find unexpected benefits. For example, some accident, sickness and unemployment insurers might pay your mortgage for a certain period if you were to die.

Or, if your child were to become critically ill, forcing you to take a break or give up work completely, you could check your critical illness cover, as there may be children's critical illness cover included as standard.

If you can't find out from your paperwork or you don't understand something, contact your insurer or the financial adviser who sold the insurance to you.

Important! If you suspect that there could or might be a problem (such as preliminary consultations for redundancy at work, or you have recently been diagnosed with a serious health condition such as cancer), you must always be honest with the insurer when applying for a new policy. Failure to declare something important could lead to your claim being refused. Some income protection policies, for example, will exclude existing conditions or decline you cover if there is already a threat of redundancy. Similarly, life insurance may exclude your existing condition or even decline to cover you. A good port of call if you are having trouble finding life insurance would be a charity related to your condition, as they sometimes have links with specialist insurers that might be prepared to cover you.

It's those things that we're completely unprepared for that can spell catastrophe for our finances, which is why it's so important to have suitable protection in place. A mortgage payment protection policy or income protection policy can help absorb some of the financial shock if you're unable to work. Similarly, life insurance and critical illness cover can do the same in the event of death or a debilitating condition. The key thing is to shop around for the policy that's right for you, and that doesn't necessarily mean the cheapest. Always compare the benefits of the policy first and the price second. If you are unsure what protection is best for you, employ the services of an independent financial adviser who will be able to guide you.

Whether it's your mortgage payment going up, your income going down, or a combination of the two, the net effect is the same – you're worried you won't be able to pay your mortgage. There are still more things that might help.

• Review your budget.You shouldn't consider your mortgage in isolation from all your other monthly bills. You may be able to save money elsewhere by reviewing your budget in preparation for leaner times.
• Can your existing lender offer you a new deal? Quite often your lender has products that you can switch to. If you are worried about a rate rise, or simply can't afford your payments to go above a certain level, then a fixed rate or capped rate mortgage might be appropriate. If you're on a cheap variable deal, then remortgaging to a fixed or capped rate could mean that your monthly payment goes up but weigh that against the security you would have from knowing what your payment will be for a set period. The big advantage of remortgaging with your existing lender is that it can cut down on costs that could crop up if you remortgaged to another lender. There might be an arrangement fee to pay upfront, although you may be able to add that to your mortgage balance if you will have trouble paying that in advance.

Remember: Check there isn't an early repayment charge payable if you want to remortgage. If there is, think carefully about whether the benefits would outweigh the costs. If in doubt, speak to an independent financial adviser or mortgage broker.

• Can you remortgage? Before you start missing payments or getting into difficulties, have you tried to remortgage? Providing your mortgage is small enough in relation to the value of your house, and you earn enough to be considered, there are good deals out there, particularly if you're now sitting in a lower loan-to-value band. This may enable you to lower your monthly payments to a more affordable level.
• Talk to your lender as soon as you can. If none of the options above are open to you, then the best idea is to talk to your lender – they will be just as keen as you to avoid problems and will be able to discuss what options you can take advantage of. They can negotiate different solutions depending on your situation, ranging from a short payment break to increasing the term of your mortgage.